Lodha Developers is shifting its commercial real estate business model to “build and lease” rather than outright sale of properties

Lodha Developer’s plan to ramp up its commercial real estate is part of the larger plan to own substantial leased assets in the next five years.

After building a sizeable residential portfolio, India’s largest realty firm in terms of sales, Lodha Developers Pvt. Ltd, is looking at commercial real estate for its next level of growth. The firm is planning to build around 9 million sq. ft of office space, 1 million sq. ft of retail space and a warehousing and logistics park in Mumbai on 150 acres with an investment of nearly Rs2,500 crore in the next five years.

With these plans, the Mumbai-based real estate firm is also shifting its commercial real estate business model for the first time to “build and lease” rather than outright sale of the properties as it looks to develop a substantial commercial lease portfolio that could later be monetized either through a REIT (real estate investment trust) listing or sales to investors.

“We will now aggressively ramp up our commercial asset business. Our plan is to have nine million square ft of office space under our management... This is part of our larger aspiration of creating a (commercial) business valuation of $1 billion by 2021,” Shaishav Dharia, regional chief executive officer, Lodha Group told Mint.

He said work has begun on three commercial projects that have a potential development area of 2.5 million sq. ft. The firm is also in the process of building a 150-acre industrial logistics park as part of its mixed used development project—Palava City—in Mumbai.

“We as a group already have 480 million sq. ft of developable land. All of this is in the Mumbai Metropolitan Region (MMR) and already paid for. When you have such a big land parcel, it creates another opportunity for us, particularly in terms of having large mixed development in our portfolio,” Dharia said.

The firm is in the process of building two commercial towers with around 700,000 sq. ft of space over 87 acres of land at Kolshet in Thane. It had bought the land parcel in 2014 from Clariant Chemicals for Rs1,154 crore. Within the Palava mixed-use development, Lodha has also chalked out plans to start construction of office buildings with 700,000 sq. ft of space in the next two to three months.

Besides, the firm expects to deliver another 900,000 sq. ft of office buildings by 2018 that are currently being developed as part of the New Cuffe Parade project, a mixed use development at Wadala in Mumbai.

“So around 2.3 million sq. ft of commercial space will be off the ground in the next two to three months,” Dharia said.

He said building these assets would require an annual investment of around Rs500 crore for the next five years. This would mainly be funded through internal accruals.

Lodha’s plan to ramp up its commercial real estate is part of the larger plan to own substantial leased assets in the next five years. So far, the company’s only source of rental revenue is a mall at Palava which was delivered in September last year.

Though it has developed around 5 million sq. ft of office space in the last five years, it has only followed the “build and sell” model.

“Going forward, the business plan is not to sell commercial assets. We will basically be owning it and it will purely be on a leased model only,” Dharia said, adding that the growing interest for REITs has made commercial real estate an attractive business opportunity for many builders.

The slump in the residential market has had no effect on the demand for commercial real estate, which has continued to pick up on the back of interest shown from information technology (IT) and IT-enabled firms, banks and e-commerce companies.

According to property consultant CBRE, office space uptake grew by 9% in 2016, touching an all-time high of 43 million sq. ft across major cities in the country. Meanwhile, new supply declined by 12% to about 35 million sq. ft.

“There has been a surge in demand for leased assets whether it is offices or retail. It has consistently picked up since 2015. But there is a supply crunch in new grade A offices right now. This definitely creates an opportunity for us,” Dharia said.- by Bidya SapamSource : LiveMint

Private equity investments in real estate inflows in 2016 were seen at their highest in nine years at Rs. 399 billion, registering a 26% increase from Rs. 316.7 billion in 2015

Mumbai saw the highest share of inflow at 32% of the total private equity investments in real estate.

Photo: Aniruddha Chowdhury/Mint

Private equity investments in the real estate sector increased by 26% during 2016 and touched a nine-year high of nearly Rs40,000 crore, according to property consultant Cushman & Wakefield.

Mumbai saw the highest share of inflow at 32% of the total private equity investments in real estate (PERE). “PERE inflows in 2016 were seen at their highest in nine years at Rs399 billion ($5.97 billion), registering a 26% increase from Rs316.7 billion ($4.8 billion) in 2015,” the consultant said in a statement.

The number of deals closed during the year also rose only 5% with 119 deals. Average deal size increased to Rs340 crore ($50 million) from Rs280 crore ($43 million) 2015, signalling increased confidence amongst investors to make larger investments into the Indian real estate sector.

Residential assets remained the most preferred asset class with over 52% of (Rs20,800 crore/$3.1 billion) of the total PERE witnessed in this asset class during the year.

Private equity inflows into the housing sector rose by only 5% during 2016.

Domestic funds were most active investors in housing and accounted for almost 80% of the total investments. Investments in commercial office assets were Rs5,700 crore ($0.85 billion), lower than that of last year, as a few large deals for office portfolios initiated in 2016 are still in active discussion and likely to close this year.

“The year 2016 was one of the best years for the organised retail real estate sector, with the sector attracting Rs72 billion ($1.07 billion) of PE investments. PE inflows into malls rose more than seven-fold in 2016 from 2015 levels on account of rising interest from institutional investors and funds looking to invest in top-grade leased malls with low vacancy levels. The recent efforts by the government to regulate the sector has been viewed favourably by investors who are now looking at the long term potential of the Indian market,” Cushman & Wakefield India MD Anshul Jain said.

The commercial office sector has been witnessing sustained high demand and investors are enthused by the opportunity in this space, led by impending real estate investment trusts (REITs), he added.- PTI Source : LiveMint

A mutual fund is permitted to invest only up to 5% of its net asset value in units of a single issuer of alternative securities. The maximum allowed investment in alternative instruments by a single fund will be capped at 10%. The cap will not be applicable in the case of index fund or sector- or industry-specific scheme.

“A mutual fund may invest in the units of REITs and InvITs... No mutual fund under all its schemes shall own more than 10 per cent of units issued by a single issuer of REIT and InvIT,” Sebi said in a notification dated 15 February.

The move is part of Sebi’s effort to get more number of investors into REITs and InvITs. Both REITs and InvITs are expected to help garner billions of dollars into the country’s real estate and infrastructure segments.- PTISource : LiveMint

To what extent are Vastu Shastra norms important, if all the other aspects of a property meet the home seeker’s requirements?

We look at the Vastu principles and remedies, to help buyers arrive at a decision

Consider this scenario: after a prolonged search, you get an unbelievable offer on a property. However, you find that the property does not conform to Vastu norms. Should you drop the offer? This is a dilemma that many home buyers face. While some home seekers may persist and purchase a flat despite Vastu faults, others may reject it outright. The question is, to what extent should one heed Vastu norms?Vastu Shastra is a ‘science of architecture’ and its principles have been followed in India for centuries. It incorporates many Hindu beliefs and the designs are intended to integrate the functional aspects of structures and geometric patterns, with nature and forces like the sun and wind.“Vastu holds an enormous importance in our culture. While we must check the basic Vastu compliance while buying a home/property, we must also understand that not all the principles of Vastu may be satisfied in any property. However, the science is such that there are modifications and solutions, available for most of the conceivable problems,” says Ricky Doshi, founder of ARD Studio.Vastu faults that home owners should guard againstAccording to experts, Vastu imperfections are bound to exist in any property or house.The important thing to consider, is whether the Vastu-compliant aspects outweigh the imperfections. Hence, one must definitely consider a good offer, provided the Vastu defects can be remedied. Vastu principles are meant to provide benefits to the end-user and must not become a judgment process for progress and failure.On the other hand, the offers or discount on a property may be so lucrative, that it dwarfs the impact of Vastu faults in the short term. However, in the long term, these imperfections could create disharmony and persistent negativity. Hence, there are certain basic faults that home seekers must guard against, such as:The property should not face the south-west direction.There should not be any cut in the construction, especially in the north-east and the south-west direction. Ideally, the plot on which the property stands, should have a square shape.The bathroom and kitchen should not be constructed in the north-east direction.Corrections, for common Vastu defects While Vastu principles are applied to improve the living space, blaming Vastu imperfections for failure in personal life, is irrational, as it is impossible to find a property that is 100% Vastu compliant.“Therefore, if you want to purchase a property with a certain Vastu fault, then, evaluate the correction cost against the discount on the property, to decide whether you should buy it or not. If possible, get the target property checked by an established Vastu expert for the final evaluation,” concludes Vikash Sethi, CEO and Founder, A2ZVastu.com.“If there is a good offer on a property that also has Vastu defects, then, the imperfections should be carefully dealt with, by finding out possible solutions for these imperfections”- Ricky Doshi, founder, ARD Studio.- by Amit SethiSource : Housing.com

Real estate investment trusts are intended to enable more people to invest in the Indian property market and boost funding in the sector. How does it work and why haven’t more people flocked to this investment avenue? We examine

The Indian real estate sector has been lucrative for savvy investors over the last decade, but it has not been without accompanying uncertainties. The introduction of real estate investment trusts (REITs), will provide a platform that will allow all kinds of investors (even those with smaller budgets) to make safe and rewarding investments in the Indian property market.

With REITs, investors can start with as small a sum as Rs 2 lakhs, to secure units in exchange.

The REIT platform has already been approved by the Securities and Exchange Board of India (SEBI) and like mutual funds, it will pool the money from all investors across the country. The money collected from the REIT funds, will subsequently be invested in commercial properties to generate income.

A REIT will need to be registered via an initial public offering (IPO). REIT units will have to be listed with exchanges and consequently, traded as securities.

The SEBI board has kept the minimum asset sizes to be invested in, at Rs 500 crores. However, the minimum issue size would have to be less than Rs 250 crores. As with stocks, the investors will be able to buy the units from either primary and/or the secondary markets.

How does a REIT work?

REIT is a process to generate funds from a lot of investors, to directly invest in properties like offices, residential units, hotels, shopping centers, warehouses, etc. All REITs will be listed with the stock exchanges, as they would be structured like trusts. Consequently, REIT assets will be held with independent trustees for unit holders/investors.

Role of the trustees in a REIT

The trustees of REITs have defined duties, which typically involve ensuring compliance and adherence to all applicable laws that protect the rights of the investors.

The objective of REITs

A REIT’s objective, is to provide the investors with dividends that are generated from the capital gains accruing from the sale of the commercial assets. The trust distributes 90% of the income among its investors via dividends.

Apart from minimum entry level, a REIT is supposed to provide diversified and safe investment opportunities with reduced risks and under a professional management, to ensure maximum return on investments.

The advantages of REITs include:

Income dividends: 90% of distributable cash, at least twice in a year.

Transparency: REITs will showcase the full valuation on a yearly basis and will also update it on a half-yearly basis.

Diversification: According to the guidelines, REITs will have to invest in a minimum of two projects with 60% asset value in a single project.

Lower risk: At least 80% of the assets will have to be invested into revenue-generating and completed projects. The remaining 20% include under construction projects, equity shares of the listed properties, mortgage-based securities, equity shares that derive a minimum of 75% of income from government securities or G-secs, money market instruments, cash equivalents and real estate activities.

Although the concept of REITs, has been in the news for some time, the regulations that have been rolled out so far, have not helped to increase their popularity. Exemption of REITs from tax on the distribution of dividends, would make it much more attractive for investors.

According to a recent report by Cushman & Wakefield, commercial properties in India that are ‘REITable’ investment opportunities, are between $43 billion and $54 billion across the top cities.

Are REITs more attractive than actual property purchase?

Investing in REIT, can be compared to investing in gold bonds. Indians are partial to buying physical gold, rather than in gold bonds. Similarly, having one’s own property will always provide Indians with greater satisfaction, than mere paper investments. The Indian property market has almost stabilised. While it is human tendency to wait and watch, the bottom of the market cannot be fathomed accurately at the best of times. With the Union Budget 2017-18 clearly favouring first- time home buyers, 2017 may certainly be the year to make home ownership a reality.

Real Estate as a necessity might have seen a paradigm shift from being a middle-aged proposition to young buyer’s fancy but real estate as an investment continues to be the niche of older investors. Buying a property for end-use remains a priority for young investors who have started earning huge salaries but to be a serial investor, it’s not just the funds which are imperative but the experience and the patience are equally important. Here are a few reasons why real estate investments suit elderly investors.

Investors with experience can diversify their portfolio
Portfolio diversification in real estate is as important as choosing the right kind of asset for investment. Moreover, there is less risk when an investor forays into different types of the segment. Since there are different kinds of returns in every property segment, deriving returns from these segments can further lower the risk and investor can continue to earn hefty amount for a longer duration. In fact, for investors who are nearing retirement, investment diversification is more like a balancing act to neutralise the high-risk channels like stocks, mutual funds etc.

Older investors can manage their property to extract passive income

If you are investing in the property market to earn rental returns, there is an imperative need to manage and maintain the property and the tenants to earn the maximum returns plus the paperwork. While the young investors do not have the experience as well as the time to cope up with the rent collection or lease signing and other formalities, aged people have a bandwidth to manage their investment in a better way. The best idea is to get a property management agency which manages your property at a reasonable cost and still get a handful of cash in your hands.

Investors can mitigate risk through continuous evaluation of market

With age and experience, investors get the hang of real estate market and hence can evaluate risk at every point of the real estate cycle. A young investor won't has enough time and mind to give it to such high-value investment prospect. This is the reason why early investors are often advised to own gold, stocks, mutual funds etc while an older, mature investor prefers to go for the property market as an investment.
Apart from this, older investors are more resilient in nature than the younger ones.
These are some of the factors that prove that an older investor is better suited of real estate investment. It’s not just the matter of funds but also about the knowledge and experience that property investment demands which do not come with expert advice or suggestions but with self-education and understanding.